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01/11 03:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite some positive operational improvements, the overall sentiment is negative due to declining revenue, weak guidance, and inflationary pressures on beef costs. The Q&A revealed concerns about refranchising progress and vague management responses. The revised revenue guidance and expected decline in same-store sales also contribute to a negative outlook, outweighing positive elements like cost efficiency gains and the Big Yummm initiative's impact.
Total Revenues $265.1 million in Q3 2025, compared to $274.6 million in Q3 2024, a decrease of $9.5 million or approximately 3.5%. The decline was attributed to a 1.2% decrease in comparable restaurant revenue, which included a 1.7% increase in net menu price offset by a 3% decline in guest traffic.
Comparable Restaurant Revenue Declined by 1.2% year-over-year in Q3 2025. This included a 1.7% increase in net menu price offset by a 3% decline in guest traffic. The improvement in traffic trends was attributed to the success of the Big Yummm Burger deal and growth in off-premise business.
Restaurant Level Operating Profit 9.9% of restaurant revenue in Q3 2025, an increase of 90 basis points compared to Q3 2024. The improvement was driven by significant gains in labor efficiency.
Adjusted EBITDA $7.6 million in Q3 2025, an increase of $3.4 million compared to Q3 2024. The increase was due to cost efficiency gains, particularly in labor, and the benefit of menu price increases.
General and Administrative Costs $16.9 million in Q3 2025, compared to $20.8 million in Q3 2024, a decrease of $3.9 million. The reduction was primarily due to not holding a partner conference event in 2025 as was done in 2024.
Selling Expenses $6.8 million in Q3 2025, compared to $5.5 million in Q3 2024, an increase of $1.3 million. The increase was primarily due to additional investment in third-party delivery platforms and other channels.
Off-Premise Business Represented approximately 25% of sales in Q3 2025 and delivered traffic growth of 2.9%. The growth was driven largely through a significantly expanded approach to catering.
Cash and Cash Equivalents $21.7 million at the end of Q3 2025, with $9.2 million in restricted cash and $29 million of available borrowing capacity under the revolving line of credit.
Big Yummm promotion: The Big Yummm burger deal launched in Q3 exceeded expectations, improving traffic trends by 250 basis points sequentially from Q2 to Q3. It resonated strongly with midweek dining occasions, particularly during lunch, and delivered a complete dining experience in under 45 minutes.
Menu innovations: The company is working on new menu innovations to enhance competitive positioning and price point value offers, with updates expected in future calls.
Off-premise business expansion: Off-premise sales accounted for 25% of Q3 sales, with traffic growth of 2.9%. This growth was driven by an expanded catering approach, and the company plans to continue aggressively growing this segment.
Data-driven marketing: A new microtargeting marketing initiative was launched, showing outsized improvements in traffic and sales for prioritized restaurants. The initiative will expand to more locations.
Labor efficiency: Labor efficiency improvements led to a 90 basis point year-over-year increase in restaurant-level operating profit. This was achieved through process changes, analytics, technology, and entrepreneurial efforts by operators.
Deferred maintenance investments: 20 restaurants were refreshed in Q3 with light-touch updates costing approximately $40,000 each. Improvements included flooring, furniture, lighting, and exterior updates, resulting in measurable sales and traffic improvements.
Capital structure optimization: The company extended its credit agreement by 6 months, engaged Jefferies for debt refinancing, established a $40 million ATM equity program, and continued refranchising efforts to strengthen its balance sheet.
Corporate efficiency initiatives: Expected G&A savings of $3-4 million in 2025 and a $10 million run rate by 2026, balancing investment priorities with profitability.
Traffic Trends: Guest traffic trends showed improvement in Q3 but slowed in recent weeks due to intentional timing shifts in marketing spend and the consumer impact of the government shutdown. This poses a risk to sustaining traffic growth.
Debt Refinancing: The company is exploring refinancing options and has extended its credit agreement. However, reliance on debt refinancing and the establishment of an ATM program to sell equity could indicate financial strain.
Cost of Goods: Beef inflation and increased cost of goods are impacting profitability, despite efforts to maintain value for guests.
Marketing Spend: Intentional timing shifts in marketing spend have led to a slowdown in guest traffic trends, which could impact Q4 performance.
Refranchising Efforts: While there is interest in refranchising, the process is ongoing and its success is uncertain, posing a risk to the company's financial strategy.
Deferred Maintenance: Investments in deferred maintenance and restaurant refreshes are necessary but could strain capital resources if not managed effectively.
Labor Efficiency: While labor efficiency has improved, maintaining this without compromising guest satisfaction remains a challenge.
Economic Conditions: The consumer impact of the government shutdown highlights vulnerability to broader economic uncertainties.
Revenue Expectations: Total revenue for 2025 is expected to be approximately $1.2 billion, unchanged from prior guidance. Comparable restaurant sales are expected to decline approximately 3% in the fourth quarter.
Restaurant-Level Operating Profit: Restaurant-level operating profit is expected to be at least 12.5%, an increase from the prior guidance of 12% to 13%.
Adjusted EBITDA: Adjusted EBITDA is now expected to be at least $65 million, up from the previous guidance of $60 million to $65 million.
Capital Expenditures: Capital expenditures for 2025 are now expected to be approximately $33 million, up from the prior guidance of $30 million, to support investments in restaurants and technology.
Traffic Trends: Guest traffic trends are expected to decline approximately 3% in the fourth quarter, but the company is optimistic about regaining traction as marketing spend increases later in the quarter.
Cost of Goods and Operating Costs: Cost of goods in the fourth quarter is expected to be similar to the third quarter. Marginal improvement in other operating cost categories is anticipated due to higher seasonal sales in the fourth quarter.
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Despite some positive operational improvements, the overall sentiment is negative due to declining revenue, weak guidance, and inflationary pressures on beef costs. The Q&A revealed concerns about refranchising progress and vague management responses. The revised revenue guidance and expected decline in same-store sales also contribute to a negative outlook, outweighing positive elements like cost efficiency gains and the Big Yummm initiative's impact.
The earnings call revealed mixed signals: positive EBITDA growth and debt reduction, but flat sales and traffic trends. The Q&A highlighted uncertainties in labor efficiency and commodity cost pressures. Management's optimism on traffic improvement and promotional strategies is tempered by lack of clear targets. The absence of price increases and ongoing cost pressures suggest a cautious outlook. Given these factors, a neutral stock price movement is expected.
The earnings call presents a mixed outlook. While there are improvements in operational efficiency and a slight revenue increase, the company faces challenges such as declining guest traffic, competitive pressures, and supply chain issues. The management's cautious tone on refinancing debt and maintaining guest traffic adds uncertainty. The Q&A reveals concerns about maintaining efficiency and traffic, with management avoiding clear timelines on debt refinancing. Despite some positive elements like debt repayment and improved profit margins, the overall sentiment remains balanced, leading to a neutral stock price prediction.
The earnings call reflects a mixed outlook. While there are positive elements such as improved labor cost efficiency, increased adjusted EBITDA, and a focus on reducing debt, challenges remain. Traffic trends are declining, competitive pressures persist, and supply chain issues loom. The lack of a share repurchase program and flat revenue guidance further temper optimism. The Q&A highlighted management's cautious approach and lack of clear guidance on debt refinancing. Overall, the sentiment is neutral, balancing positive financial metrics against ongoing risks and uncertainties.
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